Individual Voluntary Arrangements (IVA)
An individual voluntary arrangement (IVA) is a form of insolvency that involves agreeing a repayment plan between you and those you owe money to (your creditors) with the help of an insolvency practitioner.
We’ll explain exactly what this means and what it entails and in doing so, help you work out whether or not an IVA is an appropriate solution to your debt troubles.
What is an Individual Voluntary Arrangement?
An individual voluntary arrangement, or IVA, is an agreement reached between you and your creditors to pay part or all of the debts you owe over a certain period of time.
IVAs are designed to help you deal with unsecured debts like personal loans or credit card debt but will not apply to things like mortgages that are secured against your home.
This kind of debt solution is designed for those who are swamped in debt that they are simply unable to repay. It is a form of insolvency that is, arguably, less severe than declaring bankruptcy. The idea is that you extend the repayment term by reducing monthly repayments and eventually pay off all or most of what you owe.
How do they work?
To set up an IVA, you’ll need the services of an insolvency practitioner, or IP. The IP will often be an accountant or lawyer or other kind of licensed legal operative and will charge a fee for their services. The exact size of this fee can vary but typical costs could be around £5,000.
The insolvency practitioner will facilitate the setting up of the IVA, interacting with the creditors on your behalf throughout the course of the arrangement.
The IP will work out a monthly payment plan that will last around five years. Essentially you pay this money to your IP and they will then distribute it among your creditors in some way that they deem appropriate given how much you owe to each. In this sense, you are effectively combining all of your existing debt into one reduced repayment plan.
It is important to remember that depending on the IP you go with, they may keep a portion of what you pay each month as an additional fee.
For an IVA to be made official, you need a consensus from the creditors to whom you owe at least 75% of you debt. So if you owe a total of £50,000 to ten different creditors and £40,000 is owed to six of them, then agreement from those six means that the remaining four are legally obliged to agree to the terms as well.
Once the IVA is put in place officially, all parties are legally bound to stick to the terms.
How will I be affected by an IVA?
The main benefit of an IVA is that the payment plan will be tailored to what you can actually afford to pay back. If, by the end of the agreed term of the IVA, your debt is not completely paid off, then the remainder will be written off.
If you’re a business owner, you’ll also be able to continue trading while the IVA is active and unlike bankruptcy, an IVA is not announced publicly, making it a less stigmatising form of insolvency.
You’ll usually be able to keep expensive assets like your home and your car when you start an IVA, though you may have to remortgage your house in order to release any equity that may help pay off your debts.
One major drawback of IVAs is that starting one will adversely affect your credit rating. However this is more or less unavoidable if you’re in a situation where you need to declare some kind of insolvency and it can always be improved over time. If the debt you owe outweighs the income you’re receiving, then coming up with a debt solution like an IVA should take priority over attempting to maintain a good credit score.
Should I apply for an IVA?
In order to qualify for an IVA, you generally need have at least £10,000 in unsecured debt owed to two or more creditors. These figures are not legal requirements (there are none) but are general rules of thumb followed by the industry. You also need to be a resident in England, Wales or Northern Ireland. There is an equivalent scheme for those who live in Scotland called a Protected Trust Deed.
If all of the above applies to you and you have enough of a regular income to pay some but not all of the debt that you owe then you should consider an IVA. You should bear in mind though, that if you fail to meet the agreed monthly payments at any point during the course of the arrangement, then it may be rescinded and you could be forced to declare bankruptcy.
Head over to our IVA application page and fill in our short form to set up an agreement with our trusted debt management partners today. It only takes a matter of minutes for you to be well on your way to escaping your debt.
What happens when the IVA is over?
At the end of the IVA, your remaining debt will be written off and you will be able to, for all intents and purposes, start over financially.
The IVA will remain as a negative mark on your credit report for up to seven years and so during this time you might find it more difficult to apply for any other loans or credit. However upon successful completion of the agreement, the record of your IVA will be wiped from the Insolvency Register.